India's IT Giants Face $500 Million Profit Hit from New Labor Codes
India's five largest information technology services companies have taken a significant financial blow from the country's new labor regulations. In the October-December 2025 quarter, these firms collectively recorded upfront costs of ₹4,645 crore, which translates to approximately $500 million. This substantial expense directly resulted from increased contributions to employee retirement benefits mandated by the recently implemented labor codes.
Profitability Takes a Direct Hit
The new requirements sliced 260 to 320 basis points from the profitability margins of these technology giants during the quarter. One basis point represents one hundredth of a percentage point, making this impact quite substantial for businesses operating on tight margins. Tata Consultancy Services, the country's largest software services provider, faced the most severe impact with incremental costs reaching $238 million.
Infosys Ltd, holding the second position in the industry, disclosed a $143 million impact from the regulatory changes. HCL Technologies Ltd followed with $109 million in additional costs, while Wipro Ltd and Tech Mahindra Ltd recorded impacts of $33.3 million and $30 million respectively.
Mixed Outlook on Future Impact
Company executives have expressed varying perspectives on whether these costs will continue affecting future quarters. TCS management stated that these expenses are not recurring, with Chief Financial Officer Samir Seksaria explaining during their January 12 analyst call that they don't anticipate further profitability impacts unless regulatory rules provide additional clarity.
However, Infosys takes a different view. Their CFO Jayesh Sanghrajka indicated during the January 14 earnings call that they expect a recurring impact of approximately 15 basis points on an ongoing basis. He clarified that current costs have only factored in the existing legislation, leaving room for potential future adjustments.
Industry Preparation Varies
Wipro appears to have been better prepared for the regulatory changes than some competitors. CFO Aparna Iyer stated during their Friday earnings conference that their labor code impact was among the least in the industry because they had been gradually aligning their practices with the new requirements over time. She emphasized that they anticipate no continuing financial impact from the regulations.
HCLTech CEO Vijayakumar expressed similar confidence, noting that while the company will comply with all regulations, the labor codes will have no impact on their hiring plans. He stressed that business operations will continue normally despite the regulatory changes.
What the Labor Codes Actually Change
The Indian government implemented these labor codes in November 2025 with several key provisions affecting the technology sector. The regulations now mandate that basic pay must constitute at least 50% of total employee compensation, which automatically increases statutory payouts like provident fund and gratuity contributions.
Additional requirements include issuing formal written appointment letters to all employees, which has now become a legal obligation for every employer. The codes also establish fixed timelines for salary payments, requiring that wages be disbursed by the seventh day of each month.
Industry Body Weighs In
The National Association of Software and Service Companies (Nasscom), representing India's IT industry, has acknowledged both challenges and benefits from the new regulations. In a November 2025 media statement, the industry body noted that full implementation of the codes could bring greater predictability and transparency for both companies and their workforce.
Nasscom highlighted several provisions particularly relevant to the technology sector, including expanded social security coverage, recognition of gig and platform work, equal pay requirements, and structured grievance mechanisms for IT and IT-enabled services.
Employment Scale of the Sector
Together, these five companies employ more than 1.5 million people, making the IT sector one of the largest formal employers in India. As of December 2025, TCS employed 582,163 people, while Infosys had 337,034 employees on its payroll. HCLTech's headcount stood at 226,379, with Wipro and Tech Mahindra employing 242,021 and 149,616 people respectively.
The sheer scale of these workforces means that even small regulatory changes can create substantial financial impacts across the industry. The current quarter results demonstrate how policy changes directly translate to corporate bottom lines in this employment-intensive sector.
